And now let's get to the big story breakdown.
The December Fed decision is shaping up to be one of the tightest calls in years, even as investors now lean toward a rate cut.
The FOMC is deeply divided, and Powell is set to be weighing two options cut rates and signal a higher bar for any additional moves or hold steady and wait for more employment and inflation data in January.
Well, the split does reflect mixed economic signals with job growth stalling and inflation still running.
High combo.
Some economists say carries early signs of stagnation.
Well joining me this morning is Brian Jacobson, chief economic strategist at Amex Wealth Management.
Brian, good morning.
Thank you so much for joining me.
Well, on the heels of this week's economic data, expectations for a 25 basis point cut at the December meeting are high.
So how are you digesting the latest data releases and what does it mean for rate cut odds?
Yeah, thank you for having me, and I think that with some of the data that we've received lately, it's been mixed and it's also dated, but data data is better than no data.
And so if we look at, say, retail sales numbers, those were up only about 0.2% on the month, but fairly soft patch.
A lot of the labor market data, especially if we look at the ADP numbers, those are showing signs of continued labor market softness.
We don't necessarily have the inflation numbers that we might want.
But we do have some from the private sector, from companies like True Flation and Price Stats that I think are showing that we're seeing a trend towards continued labor market softness and not signs of inflation accelerating.
And so in a way I think that while the Fed might be divided, the balance of evidence really supports the case for the rate cut as opposed to a pause at this point.
Yeah, and Brian, one thing I do want to get to is consumers turn more negative about the US economy as well as their future with growing worries about their jobs, and this is according to the conference board's latest data released.
It is Thanksgiving Eve and American consumers may be eyeing sales for Black Friday and of course Cyber Monday.
Now the NRF does say US holiday sales are expected to top $1 trillion for the first time ever, but break down the reality for consumers out there, Brian.
Sure, I think the reality is that while the headline number of retail sales exceeding $1 trillion sounds great, that's only up about 3 to 4% from last year, which is actually a fairly modest pace of growth.
So I think that the level is very high, but it probably should be a little bit higher just given where we are in terms of what the unemployment rate, also where we are seasonally speaking.
So people are looking for those bargains.
A lot of people that I've been speaking to say that really the approach that they're taking is trying to almost trim the number of people that they're buying gifts for, so they have a certain budget, but they might allocate more to a smaller number of individuals still seeking those bargains, curating that list of people that they're purchasing the gifts for.
So I think that holiday sales are likely going to come in OK, but nothing all that great.
And speaking of gifts, it's never too early to talk about Santa, and equity markets are firing into your end as investors look for the traditional Santa Claus rally.
The S&P 500 has gained about 14% this year, and historically November and December tend to add about 6.5% after six straight positive months.
But is Santa bringing a little extra cheer to investors' portfolios heading into the new year?
I think that we could see that Santa rail and remember the Santa Claus rally that comes from the stock trader's Almanac where back in 1972 they noticed that the last 5 trading sessions of the year and then the 1st 2 of the next year, so it's after Christmas and basically, you know, the Christmas to New Year's and then the last 1st 2 days of the New Year, those on average do tend to be the stronger parts.
Of the market, you oftentimes get thinner markets.
A lot of people don't necessarily like to be trading and working.
Also people investing maybe some of those gifts that they've given.
So we do see that upward trend.
I think that maybe what we're going to see here, as long as Chair Powell doesn't play the Grinch that stole Christmas at their December 10th meeting, we should see some upward momentum for the markets as we go into the new year.
Yeah, and definitely the countdown is on to the December Fed meeting.
We have about 14 days to go.
And speaking of which, we are starting to get some bullish calls for the S&P 500 on Wall Street heading into next year.
But one thing we have to keep in mind is that the stock market is not the economy.
So with so much of recent economic growth tied to AI investment and also stock wealth, how big a risk does the economy face if the AI boom actually falters?
Sure, it's such a good question because I think that when we look at the market, the concentration and the dependence on the AI story is much higher than the economy's dependence on the AI story.
Just as an example of that, when we look at the Atlanta Fed's GDP now number for the 3rd quarter, about when we take the 4% growth annualized, more than half of It is from consumer spending and probably only about 25% of that is from AI AI related spending.
So the economy isn't quite as dependent on the AI story as what the overall market is.
The interesting thing to me right now is how the AI story, there's this horse race where Nvidia's losses.
Google's gains and so it's almost like you kind of have this tradeoff between who's going to be the top contender going forward in the AI race.
And so for an investor who's diversified market cap weighted portfolio, you don't necessarily have to worry about them battling that out because one person's loss is another person's gain.
Well, Brian, thank you so much for joining us ahead of the Thanksgiving Day holiday and from all of us here, we wish you a happy holiday season.
Thank you so much for joining us.
Thank you.
You too.
